Summary of IFRS 1

Objective
IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the p rocedures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing its gene ral purpose financia l statements.

Note: An entity that conducts rate-regulated activities and has recognised amounts in its previous GAAP financial statements
that meet the definition of 'regulatory deferral account balances' (sometimes referred to 'regulatory assets' and 'regulatory
liabilities') can optionally apply IFRS 14 Regulatory Deferral Accounts in addition to IFRS 1. An entity that elects to apply
IFRS 14 in its first IFRS financial statements must continue to apply it in subsequent financial statements.

Definition of first-time adoption

A first -time adopter is an entity that, for the first time, makes an explicit and unreserved sta tement that its gene ral purpose financial statements comp ly with IFRSs. [IFRS 1.3]
An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial statements for in ternal management use, as long as those IFRS financial statements we re not made available to owners or external parties such as investors or creditors. If a set of IFRS financia l statements was, for any reason, made available to owners or external partie s in the p receding year, then the entity will already be conside red to be on IFRSs, and IFRS 1 does not apply. [IFRS 1.3]
An entity can also be a first-time adopter if, in the p receding year, its financia l statements: [IFRS 1.3]
asse rted compliance with some but not all IFRSs, or
included only a reconciliation of selected figu res from p revious GAAP to IFRSs. (P revious GAAP means the GAAP that an entity followed immediate ly before adopting to IFRSs.)
Howeve r, an entity is not a first-time adopter if, in the p receding year, its financia l statements asserted:
Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs.
Compliance with both previous GAAP and IFRSs.
An entity that applied IFRSs in a previous reporting period, but whose mo st recent previous annual financial statements did not contain an explicit and un reserved statement of compliance with IFRSs can choose to:
app ly the requirements of IFRS 1 (including the various permitted exemptions to full retrospective application), or
ret rospectively apply IFRSs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and E rro rs, as if it never stopped app lying IFRSs. [IFRS 1.4A]

Overview for an entity that adopts IFRSs for the first time
in its annual financial statements for the year ended 31
December 2014
Accounting policies
Sele ct accounting policies based on IFRSs effective at 31 December 2014.
IFRS reporting periods
P repare at least 2014 and 2013 financial statements and the openin g balance sheet (as of 1 January 2012 or beginning of the first period for which full comparative financial sta tements are presented, if earlier) by app lying the IFRSs effective at 31 December 2014. [IFRS 1.7]
Since IAS 1 requires that at least one year of comparative prior period financial information be presen ted, the openin g balance sheet will be 1 January 2012 if not earlier. This would mean that an entity's first financial statements should in clude at least: [IFRS 1.21]
th ree statements of financial position
t wo statements of profit or lo ss and other comp rehensive income
t wo sepa rate statements of p rofit or loss (if presented)
t wo statements of cash flows
t wo statements of changes in equity, and
related notes, including comparative information
If a 31 December 2014 adopter reports selected financial data (but not full financial statements) on an IFRS basis for periods prior to 2013, in addition to full financial statements for 2014 and 2013, that does not change the fact that its opening IFRS balance sheet is as of 1 January 2012.

Adjustments required to move from previous GAAP to

IFRSs at the time of first-time adoption

Derecognition of some previous GAAP assets and liabilities

The entity should eliminate previous-GAAP assets and liabilities f rom the opening balance sheet if they do not qualify for recognition under IFRSs. [IFRS 1.10(b)] For example:
IAS 38 does not permit recognition of expenditure on any of the following as an intangible asset:
resea rch
sta rt-up, pre-operating, and p re-opening costs

t raining

advertising and promotion

moving and relocatio n

o
If the entity's previous GAAP had recognised these as assets, they are eliminated in the openin g IFRS bala nce sheet

If the entity's previous GAAP had allowed accrual of liabilities for "general reserves", restructurings, futu re operating losses, or major overhauls that do not meet the conditions for recognition as a provision under IAS 37, these are eliminated in the opening IFRS bala nce sheet
If the entity's previous GAAP had allowed recognition of contingent assets as defined in IAS 37.10, these are eliminated in the opening IFRS bala nce sheet
Recognition of some assets and liabilities not recognised under previous GAAP
Conversely, the entity should recognise all assets and liabilities that a re required to be recognised by IFRS even if they we re never recognised under previous GAAP. [IFRS 1.10(a)] For example:
IAS 39 requires recognition of all derivative financial assets and liabilities, in cluding embedded derivatives. These were not recognised under many local GAAPs.
IAS 19 requires an employer to recognise a liability when an employee has provided service in exchange for benefits to be paid in the futu re. These are not ju st post -employment benefits (e.g., pension plans) but also obligations for medical and life insurance, vacations, termination benefits, and deferred compensation. In the case of 'over-funded' defined benefit plans, this would be a pla n asset.
IAS 37 requires recognition of p rovisions as liabilities. Examples could include an entity's obligations for re structurings, one rous contracts, decommissioning, re mediation, site re sto ration, wa rranties, guarantees, and litigation.
Deferred tax assets and liabilities would be recognised in conformity with IAS 12.
Reclassification
The entity should reclassify previous-GAAP opening bala nce sheet items into the app ropriate IFRS classification. [IFRS 1.10(c)] Examples:
IAS 10 does not permit classifying dividends decla red or proposed after the balance sheet date as a liability at the balance sheet date. If such liability was recognised under p revious GAAP it would be reversed in the opening IFRS balance sheet.
If the entity's previous GAAP had allowed t reasury stock (an entity's own sha res that it had purchased) to be reported as an asset, it would be reclassified as a component of equity under IFRS.
Items classified as id entifiable intangible assets in a business combinatio n accounted for under the previous GAAP may be required to be reclassified as goodwill under IFRS 3 because th ey do not meet the definition of an in tangible asset under IAS 38. The converse may also be true in some cases.
IAS 32 has principles for cla ssifying items as financial liabilities or equity. Thus mandatorily redeemable preferred shares that may have been classified as equity under previous GAAP would be reclassified as liabilities in the openin g IFRS balance sheet.
Note that IFRS 1 makes an exception f rom the "split -accounting" provisions of IAS 32. If the liability component of a compound financial instrument is no longer outstanding at the date of the opening IFRS balance sheet, the entity is not required to reclassify out of retained earnings and into other equity the original equity component of the compound inst rument.
The reclassification prin ciple would apply for the purpose of defining reportable segments under IFRS 8.
Some offsetting (netting) of assets and liabilities or of income and expense items that had been acceptable under previous GAAP may no longer be acceptable under IFRS.
Measurement
The general measurement principle there are severa l significant exceptions noted below is to apply effective IFRSs in measuring all recognised assets and liabilities. [IFRS 1.10(d)]

How to recognise adjustments required to move from

previous GAAP to IFRSs
Adju stments required to move from p revious GAAP to IFRSs at the date of t ransitio n should be recognised direct ly in retained earnings or, if appropriate, another category of equity at the date of transition to IFRSs. [IFRS 1.11]

Estimates

In p reparing IFRS estimates at the date of t ransition to IFRSs retrospective ly, the entity must use the inputs and assumptions that had been used to determine previous GAAP estimates as of that date (af ter adjustments to reflect any differences in accounting policies). The entity is not permitted to use information that became available only after the previous GAAP estimates we re made except to correct an erro r. [IFRS 1.14]

Changes to disclosures
Fo r many entities, new areas of disclo su re will be added that we re not require ments under the previous GAAP (perhaps segment information, earnings per share, discontin uing ope ratio ns, contingencies and fair values of all financial in struments) and disclo su res that had been required under previous GAAP will be broadened (perhaps related party disclosu res).

Disclosure of selected financial data for periods before the

first IFRS statement of financial position (balance sheet)
If a first -time adopter wants to disclose sele cted financial in formatio n for periods before the date of the opening IFRS balance sheet, it is not required to conform that information to IFRS. Conforming that earlier selected financial information to IFRSs is optional.[IFRS 1.22]
If the entity ele cts to present the earlier selected financia l information based on its p revious GAAP ra ther than IFRS, it must p rominently label that earlier information as not comp lying with IFRS and, further, it mu st disclo se the nature of the main adju stments that would make that in formatio n comp ly with IFRS. This la tter disclosure is narrative and not necessarily quantified.[IFRS 1.22]

Disclosures in the financial statements of a first-time

adopter
1.

IFRS 1 requires disclo su res that explain how the transition f rom previous GAAP to IFRS affected the entity's reported financial position, financia l performance and cash flows. [IFRS 1.23] This inclu des:
reconciliations of equity reported under p revious GAAP to equity under IFRS both (a) at the date of t ransitio n to IFRSs and (b) the end of the la st annual period reported under the previous GAAP. [IFRS 1.24(a)] (For an entity adopting IFRSs for the first time in its 31 December 2014 financial statements, the reconciliations would be as of 1 January 2012 and 31 December 2013.)

2.

reconciliations of total comp rehensive income for the last annual period reported under the previous GAAP to total comp rehensive income under IFRSs for the same period [IFRS 1.24(b)]

3.

explanation of material adju stments that were made, in adopting IFRSs for the first time, to the statement of financial position, statement of comp rehensive income and statement of cash flows (the latter if presented under previous GAAP) [IFRS 1.25]

4.

if erro rs in p revious GAAP financial statements we re discovered in the course of t ransition to IFRSs, those must be separa tely disclosed [IFRS 1.26]

5.

if the entity recognised or reversed any impairment losses in preparing its openin g IFRS bala nce sheet, these mu st be disclosed [IFRS 1.24(c)]

6.

app ropriate explanations if the entity has elected to app ly any of the specific recognition and measurement exemptions permit ted under IFRS 1 for instance, if it used fair values as deemed co st

Disclosures in interim financial reports

If an entity is goin g to adopt IFRSs for the first time in its annual financial statements for the year ended 31 December 2014, certain disclosure are required in its interim financial statements prior to the 31 December 2014 statements, but on ly if those interim financial statements purport to comply with IAS 34 Interim Financial Reporting. Expla natory information and a reconciliation are required in the in terim report that immediately precedes the first set of IFRS annual financial statements. The information includes reconciliations between IFRS and previous GAAP. [IFRS 1.32]

Exceptions to the retrospective application of other IFRSs

Prior to 1 January 2010, there we re th ree exceptions to the general principle of retrospective application. On 23 Ju ly 2009, IFRS 1 was amended, effective 1 January 2010, to add t wo additional exceptions with the goal of further simplifying the t ransition to IFRSs for first-time adopters. The five exceptions are: [IFRS 1.Appendix B]
IAS 39 Derecognition of financial instruments
A first -time adopter shall apply the de recognitio n requirements in IAS 39 prospectively for t ransactio ns occurring on or after 1 January 2004. However, the entity may apply the derecognition requirements ret rospectively provided that the needed information was obtained at the time of initially accounting for those t ransactions. [IFRS 1.B2-3]
IAS 39 Hedge accounting
The general rule is that the entity shall not reflect in its opening IFRS balance sheet (statement of financial position) a hedgin g relationship of a type that does not qualify for hedge accountin g in accordance with IAS 39. However, if an entity designated a net positio n as a hedged item in accordance with previous GAAP, it may designate an individual item within that net positio n as a hedged item in accordance with IFRS, provided that it does so no later than the date of transition to IFRSs. [IFRS 1.B5]

Note: Modified requirements apply when an entity applies IFRS 9 Financial Instruments (2013).
IAS 27 Non-controlling interest
IFRS 1.B7 lists specific requirements of IFRS 10 Consolidated Financial Statements that shall be applied prospective ly.
Full-cost oil and gas assets
Entities using the full co st method may elect exemption f rom ret rospective application of IFRSs for oil and gas assets. Entities ele cting this exemption will use the carrying amount under its old GAAP as the deemed co st of its oil and gas assets at the date of first -time adoption of IFRSs.
Determining whether an arrangement contains a lease
If a first -time adopter with a leasin g contract made the same type of determination of whether an arrangement contained a lease in accordance with p revious GAAP as that required by IFRIC 4 Dete rmining whether an Arrangement Contains a Lease, but at a date other than that required by IFRIC 4, the amendments exempt the entity from having to app ly IFRIC 4 when it adopts IFRSs.

Optional exemptions from the basic measurement principle

in IFRS 1

There are some further optional exemptions to the gene ral re statement and measurement principles set out above. The following exceptions are individually optional. They relate to:
business combinations [IFRS 1.Appendix C]
and a number of others [IFRS 1.Appendix D]:

sha re-based payment transactions

insurance cont racts

o
o

fair value, previous carrying amount, or revaluatio n as deemed cost

leases

cumulative translation diffe rences

invest ments in subsidia ries, joint ly cont rolled entities, associates and joint ventures

assets and liabilities of subsidiaries, associated and jo int ventu res

compound financia l in struments

designation of p reviously recognised financial inst ruments

fair value measu rement of financial assets or financial liabilities at initial recognitio n

decommissioning liabilities included in the co st of property, plant and equipment

financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concessio n Arrangements

borrowing co sts
t ransfers of assets f rom customers

extinguishing financial liabilities with equity instruments

severe hyperinflatio n

joint arrangements

o
o

Some, but not all, of them are described below.

Business combinations that occurred before opening balance sheet da te
IFRS 1 includes Appendix C explaining how a first-time adopter should account for business combinations that occurred prior to t ransition to IFRS.
An entity may keep the original p revious GAAP accounting, that is, not restate:
p revious mergers or goodwill written-off f rom reserves

st ripping co sts in the production phase of a surface mine

the carrying amounts of assets and liabilities recognised at the date of acquisition or merger, or

how goodwill was initia lly determined (do not adjust the pu rchase price allocation on acquisition)
Howeve r, should it wish to do so, an entity can elect to re state all business combin ations starting from a date it selects prior to the opening bala nce sheet date.
In all cases, the entity must ma ke an initial IAS 36 impairment test of any re main ing goodwill in the opening IFRS balance sheet, after reclassifying, as app ropria te, previous GAAP intangibles to goodwill.
The exemption for business combinations also applies to acquisitions of investments in associates, intere sts in jo int ventu res and intere sts in a joint ope ratio n when the ope ration constitutes a business.
Deemed cost
Assets carried at cost (e.g. property, pla nt and equip ment) may be measu red at their fair value at the date of t ransition to IFRSs. Fair value becomes the 'd eemed co st' going forward under the IFRS co st model. Deemed cost is an amount used as a surrogate for cost or depreciated co st at a given date. [IFRS 1.D6]
If, before the date of its first IFRS balance sheet, the entity had revalued any of these assets under its previous GAAP either to fair value or to a price-index-adju sted co st, that previous GAAP revalued amount at the date of the revaluation can become the deemed co st of the asset under IFRS. [IFRS 1.D6]
If, before the date of its first IFRS balance sheet, the entity had made a one-time revaluation of assets or liabilities to fair value because of a privatisation or initial public offering, and the revalued amount became deemed cost under the previous GAAP, that amount would continue to be deemed co st after the initial adoption of IFRS. [IFRS 1.D8]
This option applies to intangible assets on ly if an active market exists. [IFRS 1.D7]
If the carrying amount of property, plant and equip ment or intangible assets that a re used in rate-regulated activities includes amounts under previous GAAP that do not qualify for capitalisatio n in accordance with IFRSs, a first-time adopter may ele ct to use the p revious GAAP carrying amount of such items as deemed co st on the initial adoption of IFRSs. [IFRS 1.D8B]
Eligible entities subject to rate-regula tion may also optionally apply IFRS 14 Regula tory Deferral Accounts on transition to IFRSs, and in subsequent financia l statements.
IAS 19 Empl oyee benefits: actuarial gains and losses
An entity may elect to recognise all cumula tive actuarial gains and losses for all defined benefit plans at the opening IFRS balance sheet date (that is, reset any corridor recognised under previous GAAP to ze ro), even if it ele cts to use the IAS 19 corridor approach for actuarial gains and losses that arise after first -time adoption of IFRS. If a first -time adopter uses this exemption, it shall apply it to all pla ns. [IFRS 1.D10]

Note: This exemption is not available where IAS 19 Employee Benefits (2011) is applied. IAS 19 (2011) is effective for
annual reporting periods beginning on or after 1 January 2013.

IAS 21 Accumulated translation reserves

An entity may elect to recognise all t ranslation adjust ments arising on the translation of the financial statements of fo reign entities in accumulated profits or losses at the openin g IFRS bala nce sheet date (that is, reset the translation reserve included in equity under previous GAAP to zero). If the entity ele cts this exemption, the gain or loss on subsequent disposal of the fo reign entity will be adjusted only by those accumulated t ranslation adjust ments arising after the opening IFRS bala nce sheet date. [IFRS 1.D13]
IAS 27 Investments in separate financial statements
In May 2008, the IASB amended the standard to change the way the cost of an inve stment in the sepa rate financia l statements is measured on first -time adoption of IFRSs. The amendments to IFRS 1:
allow first -time adopters to use a 'deemed cost' of either fair value or the carrying amount under previous accounting practice to measure the initial co st of inve stments in subsidiaries, jointly controlled entities and associates in the separa te financial statements
remove the definition of the cost method from IAS 27 and add a requirement to p resent dividends as income in the separa te financial sta tements of the inve stor

require that, when a new parent is formed in a reo rganisatio n, the new parent must measure the co st of its inve stment in the p revious parent at the carrying amount of its sha re of the equity items of the previous parent at the date of the reorganisation
Assets and liabilities of subsidiaries, associates and joint ventures: different IFRS adoption dates of inves tor and inves tee
If a subsidiary becomes a first -time adopter later than its parent, IFRS 1 permits a choice bet ween two measu rement bases in the subsid iary's sepa rate financial statements. In this case, a subsidiary should measure its assets and liabilities as either: [IFRS 1.D16]
the carrying amount that would be inclu ded in the parent's consolidated financia l statements, based on the parent's date of t ransition to IFRSs, if no adju stments we re made for consolidatio n procedures and for the effects of the busin ess combination in which the parent acquired the subsidiary or
the carrying amounts required by IFRS 1 based on the subsid iary's date of transition to IFRSs
A similar electio n is available to an associate or joint venture that becomes a first-time adopter la ter than an entity that has significant influence or jo int control over it. [IFRS 1.D16]
If a pa rent becomes a first-time adopter later than its subsidiary, the pa rent should in its consolidated financial statements, measu re the assets and liabilities of the subsidiary at the same carrying amount as in the separa te financial statements of the subsidiary, after adjusting for consolidation adju stments and for the effects of the business combination in which the pa rent acquired the subsid iary. The same approach applies in the case of associates and joint ventures. [IFRS 1.D17]

July 2009: Two Amendments to IFRS 1

On 23 July 2009, the IASB amended IFRS 1 to:

exempt entities using the full co st method from ret rospective application of IFRSs for oil and gas assets.
exempt entities with existing le asing cont racts f rom reassessing the classification of those contracts in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease when the application of their natio nal accounting require ments produced the same result.

Click for IASB Press Release (PDF 104k).

November 2009: Proposed Limited Scope Exemption for

IFRS 7 Disclosures
On 26 November 2009, the IASB issued an exposu re draft (ED) proposing to amend IFRS 1 to state that an entity need not provide the comparative prio r-period information required by the Ma rch 2009 amendments to IFRS 7 Imp roving Disclosures about Financial Instru ments for first-time adopters adopting before 1 January 2010. As a result, IFRS 1, Appendix E, pa rag raph E1 will be amended as follows:
E1 A first -time adopter may apply the transitional provisions in paragraph 44G of IFRS 7 to the extent that the entity's first IFRS reporting period starts earlier than 1 January 2010.
The p roposed limited exemption from compa rative IFRS 7 disclosu res for first-time adopters is consistent with the exemption permit ted for early adopters of the March 2009 amendments to IFRS 7. Deadline for comments on the ED is 29 December 2009. Click for IASB Press Release (PDF 101k).

January 2010: IASB amends IFRS 1 to provide IFRS 7

disclosure exemption
On 28 January 2010, the IASB amended IFRS 1 to exempt first-time adopters of IFRSs f rom providing the additional disclosures introduced in Ma rch 2009 by Improving Disclosu res about Fin ancia l Instruments (Amendments to IFRS 7). The amendment gives first -time adopters the same t ransition provisions that Amendments to IFRS 7 provides to current IFRS p repare rs. The amendment is effective on 1 July 2010, with earlier application permitted. Click for IASB Press Release (PDF 100k).

December 2010: Two Amendments to IFRS 1

On 20 December, the IASB amended IFRS 1 to:
p rovide relief for first-time adopters of IFRSs f rom having to reconstruct transactions that occurred before their date of transition to IFRSs.

Click for IASB Press Release (PDF 33k).

p rovide guidance for entities eme rging f rom severe hyperinflation either to resume presenting IFRS financial statements or to present IFRS financial statements for the first time.